Here's a paper I'm presenting to the Eastern Economic Association meeting this weekend.
Abstract. We simulate changes in financial integration between two countries in a stock-flow consistent model. Our model describes two economies that start from virtual autarky, with trade flows opening up gradually, until the countries reach full monetary union. By introducing measures of financial integration into an SFC model, we can explore the effects of fiscal and monetary policies in the presence of financial integration on output, income, wealth and households' portfolio decisions. We find that monetary union has no significant effect on the real side of the economy, but it has effect on households' portfolio distributions. On the other hand, the convergence of asset prices and returns leads to a convergence on the households demand for foreign assets.